Despite this, the long-term fundamentals underpinning the industrial and logistics sector in the UAE remain steadfast
The UAE Industrial and Logistics Market Review released by Knight Frank Middle East shows that, due to the short to medium term impact on trade volumes globally as a result of Covid-19, the UAE’s industrial and logistics sectors will be materially impacted particularly given its re-export hub status.
Despite this, the long-term fundamentals underpinning the industrial and logistics sector in the UAE remain steadfast. Given its modern transport infrastructure, ranked 8th globally according to the World Economic forum’s Global Competitiveness Report 2019, combined with its central location, means that UAE is an attractive proposition for global businesses looking to extend their foot-print into emerging markets by using the UAE as a regional supply and re-distribution gateway.
Matthew Dadd, Partner, Occupier Solutions Commercial Agency at Knight Frank Middle East said: “Despite the challenges brought about by the Covid-19 outbreak, the long-term fundamentals underpinning the industrial and logistics sector in the UAE remain steadfast. In the short term, both the Abu Dhabi and Dubai governments have focused their respective stimulus packages to support this sector through the pandemic.”
Data from Oxford Economics shows that over the 10 year period to 2030, the UAE’s industry sector is expected to grow by 18.4%, and its transport, storage and IT sector by 32.3%.
On the back of the projected economic growth in these sectors, employment is also expected to grow with employment in the UAE’s industry sector expected to increase by almost 256,000 and by almost 96,000 in its transport, storage and IT sector over the 10 year period to 2030.
Prime and Grade A stock in the logistics-warehousing segment of the market has seen a strong level of take up from both e-commerce firms and from third party logistics operators.
In comparison to Prime and Grade A stock, Grade B stock continues to witness limited levels of demand due to the lack of quality stock.
Mikhail Vereshchagin, Commercial Agent at Knight Frank Middle East said: “Recent market activity shows that there is still demand from occupiers in the industrial and logistics sector to establish and expand operations in the UAE.”
Investment appetite for industrial and logistics assets remains strong despite the barriers to entry faced by third party developers.
Whilst there is a clear requirement and demand for high quality industrial and logistics centres, most of this requirement is in areas which are near airports or ports.
However, such locations tend to be in Free Zone ownership therefore those under taking construction of a speculatively built asset would in most cases be subject to subleasing fees. These subleasing fees can affect the financial viability of some investments, particularly those looking for medium-term return on investments.
Investors who are willing to undertake projects to supply the undersupplied Prime and Grade A market, with a long term view, are likely to be able to attract new demand at a premium to the market.
Taimur Khan, Associate Partner at Knight Frank Middle East said: “Taking a longer term view on the sector, we note there is a gap for international quality Prime and Grade A stock in a number of industrial and logistics areas in the UAE.”
We are witnessing growth in the level of demand for modern warehousing and logistics solutions, which are priced at competitive rates, across a range of size requirements. However, due to the competitive nature of the market today, investors looking to fill this gap will need to be willing to have a medium to long term investment horizon.